ACCA Applied Skills · Taxation (UK)

Gains and losses on the disposal of movable and immovable property: formula sheet

Full chapter guide

Key formulas

Chargeable gain: Disposal proceeds − allowable costs = chargeable gain; Proceeds are market value if the disposal is a gift.
Allowable costs: Acquisition cost + incidental costs of acquisition + enhancement expenditure + incidental costs of disposal; Enhancement must still be reflected in the asset at disposal. Routine repairs and maintenance are not allowable.
Taxable gains: Net gains for the year − current-year losses − brought-forward losses (as needed) − annual exempt amount (£3,000) = taxable gains; Current-year losses are set off in full. Brought-forward losses are used only to reduce gains down to the annual exempt amount.
CGT rates: 18% within the basic rate band; 24% above it; Use any unused basic rate band after taxable income. Business asset disposal relief is at 14% (lifetime limit £1,000,000).
Date of disposal: Date of unconditional contract, not completion; The tax year of the contract date decides which annual exempt amount and rates apply.
Taxable gain: Taxable gain = Total chargeable gains − current year losses − brought forward losses used − annual exempt amount; Brought forward losses are used only as far as needed to reduce gains to the annual exempt amount. Current year losses must be set off in full.
CGT rates for individuals: 18% (lower rate) / 24% (higher rate); 18% applies to the extent the taxable gain fits in the unused basic rate band. 24% applies to the rest.
Unused basic rate band: Unused band = £37,700 − taxable income (minimum nil); Taxable income is after the personal allowance and other reliefs, and excludes the gains themselves. Extended bands, for example from Gift Aid or personal pension contributions, increase the band.
Annual exempt amount: £3,000; Use it or lose it. It is deducted after current year losses.
Business asset disposal relief and investors' relief: 14% on qualifying gains; lifetime limit £1,000,000 for each relief; Check the conditions for the relief before applying the 14% rate.
Annual exempt amount: Annual exempt amount = £3,000; Individuals only. Cannot be carried forward or back. Deducted after all losses.
Order of set-off: Gains − current year losses − brought forward losses (only down to £3,000) − annual exempt amount = taxable gains; Current year losses are used in full. Brought forward losses are used only as needed.
Brought forward loss used: B/f loss used = net gains after current year losses − £3,000 (limited to the loss available); If net gains are £3,000 or less, no brought forward loss is used.
Net current year loss: If current year losses > current year gains, excess loss is carried forward; Carried forward indefinitely against future gains, only after current year losses of that year.
Negligible value claim: Loss = allowable cost − negligible value (treated as disposal and reacquisition at that value); Claim can be treated as made in an earlier tax year if conditions are met, otherwise the claim date applies.
CGT rates (individuals): 18% to basic rate band; 24% above; Rates as provided by ACCA. Business asset disposal relief and investors' relief are charged at 14% on qualifying gains.
Allowable cost on a part disposal: Allowable cost = Original cost × A ÷ (A + B); A = gross proceeds of the part sold. B = market value of the part kept at the date of disposal.
Chargeable gain on a part disposal: Gain = Proceeds − (Original cost × A ÷ (A + B)) − incidental costs of sale; Incidental costs of disposal are deducted separately. They are not included in A for the fraction.
Cost carried forward: Remaining cost = Original cost − cost used in the part disposal; This is the base cost for the part you still own.
Check on the fraction: A + B = value of the whole asset before the sale; The fraction must be between 0 and 1. If it is not, you have used the wrong figures.
CGT rates for individuals (given in the exam): 18% lower rate; 24% higher rate; annual exempt amount £3,000; These are supplied in the TX-UK tax rates and allowances. Do not memorise other figures.
PPR exempt fraction: Exempt gain = Gain × (Occupied months + Deemed occupation months + Final 9 months) ÷ Total months of ownership; Total ownership runs from acquisition to disposal. Count the final 9 months once only, and cap it at the actual period of ownership. Deemed occupation months must meet the rules in the next formula.
Deemed occupation periods: Any reason: up to 3 years in total. Employment elsewhere in the UK: up to 4 years. Employed abroad: any length.; The property must have been your main residence before the absence. Except in the working-abroad case, you must also occupy it again afterwards. Absence that does not meet these conditions is not deemed occupation.
Chargeable gain after PPR: Chargeable gain = Gain × (Non-occupied months ÷ Total months of ownership); Non-occupied months exclude deemed occupation and the final 9 months. Equivalent to gain minus exempt part.
Final period of ownership: Last 9 months of ownership are always exempt; This applies if the property was the main residence at some time. Do not apply it to a property that was never your main residence.
Garden and grounds: Exempt area = house plus grounds up to 0.5 hectare; Larger grounds can qualify only if needed for reasonable enjoyment of the home. Otherwise the excess is not exempt.
Main residence election: Election within 2 years of the combination of residences beginning; Applies if you have two or more residences. It can be varied later by notice.
CGT rates and annual exempt amount: Lower rate 18%, higher rate 24%, annual exempt amount £3,000; Use the figures in the Tax Rates and Allowances provided by ACCA. The rate depends on the individual's taxable income: 18% applies to the gain that falls within any remaining basic rate band, and 24% to the gain above it. Apply the annual exempt amount after PPR is applied.
Business asset disposal relief rate: Rate 14% on qualifying gains, lifetime limit £1,000,000; Not part of PPR, but may appear in a related disposal.
Order of matching (individuals): 1. Same day acquisitions → 2. Acquisitions in the next 30 days (earliest first) → 3. Section 104 pool; Apply the order to every disposal. Any shares not matched to the first two go to the pool.
Gain on a matched disposal: Gain = Disposal proceeds − Allowable cost of the matched shares; Do this separately for each matching category. Costs include allowable incidental costs of buying and selling.
Cost of shares sold from the pool: Cost removed = Total pool cost × Shares sold ÷ Shares in pool; Reduce the pool by the shares sold and by the cost removed. Use the pool balance immediately before the sale.
Bonus issue: New pool shares = Old shares × bonus ratio; pool cost unchanged; For a 1 for 4 bonus issue, add one share for every four held. No cost is added.
Rights issue: New pool shares = Old shares × rights ratio; pool cost + cash paid; Add the shares and the price paid. The rights issue price per share is not the pool average.
CGT on net gains: Taxable gain = Net gains − Annual exempt amount (£3,000); Use the rates provided in the exam: 18% and 24%, and 14% for business asset disposal relief or investors' relief gains.
BADR/IR rate: Qualifying gain within lifetime limit × 14%; Same rate for both reliefs. Given in the exam rates table.
Lifetime limits: BADR £1,000,000; IR £1,000,000; Separate limits. Cumulative over the person's lifetime, so deduct earlier claims.
Gain above the limit: Excess taxed at 18% or 24%; The excess is taxed with the other non-relief gains. Use 18% to the extent basic rate band is still unused, then 24%.
Annual exempt amount: £3,000; Set against gains taxed at the highest rate first to save the most tax.
Basic rate band: £37,700; Gains qualifying for BADR/IR are taxed first, so they use the basic rate band first. Other gains then fall into whatever band is left after taxable income and the relief gains: 18% within it, 24% above it.

Quick revision

A gain is chargeable if a chargeable person disposes of a chargeable asset. Gifts are treated as disposals at market value.
Individuals pay CGT at 18% and 24%. The 18% rate applies to gains within the unused basic rate band. The rest is at 24%.
The annual exempt amount is £3,000 for individuals. It is wasted if it is not used in the year.
Set current-year losses against current-year gains in full. Brought-forward losses are used only as far as needed to reduce gains to the annual exempt amount.
Business asset disposal relief and investors' relief give a 14% rate on qualifying gains, up to a £1,000,000 lifetime limit for each relief.
Chattels sold for £6,000 or less are exempt. For a gain on a larger chattel, the gain is capped at 5/3 of the excess of proceeds over £6,000.
For a chattel loss, proceeds are treated as at least £6,000.
Wasting chattels (life of 50 years or less) are exempt.
Part disposal: cost used = original cost × A ÷ (A + B), where A is the proceeds and B is the market value of the part kept.
PPR relief: the final 9 months of ownership are always treated as occupied, if the property was the main residence at some time.
Share matching order: same day, then the following 30 days, then the share pool.
Losses on disposals to connected persons can only be set against gains on disposals to the same connected person.

Common mistakes

Using nil proceeds for a gift. Fix: A gift is a disposal. Use market value at the date of the gift as proceeds.
Deducting repairs, insurance or interest as allowable costs. Fix: Only acquisition, enhancement and incidental costs of buying and selling are allowable.
Using total income instead of taxable income to find the unused basic rate band Fix: Deduct the personal allowance first. Only then subtract taxable income from £37,700.
Including the gain itself when working out how much of the basic rate band is used Fix: Gains sit on top of income. The band left over is based on taxable income only. Then the gain fills that remaining band.
Using brought forward losses before current year losses Fix: Always set current year losses first. Only then look at brought forward losses.
Using all brought forward losses to reduce the gain to nil Fix: Stop using brought forward losses when net gains reach £3,000. Keep the rest for later years.
Using the market value of the whole asset as the denominator instead of A + B. Fix: Always use A + B, where B is the value of the part kept. Only treat the whole as the denominator if it equals A + B on the same basis.
Using the value of the part sold, rather than the proceeds, as A. Fix: A is the actual proceeds in an arm's length sale. Use market value only where the rules deem it, such as a gift to a connected person.
Forgetting the final 9 months or applying it to a property that was never the main residence. Fix: Check that the property was the main residence at some time. If so, always add the final 9 months.
Dividing by the wrong number of months. Fix: The denominator is always total ownership, from acquisition to disposal.

Exam tips

Begin every answer with a quick check of person, disposal and asset. Examiners reward this and it catches exempt assets.
Always show the layout: proceeds, costs, gain. Marks are awarded for each component even if the total is wrong.
For gifts, write 'market value' as the proceeds label. This is a common scoring point.
In objective tests, read for the word 'taxable' or 'chargeable'. Chargeable is before the annual exempt amount, taxable is after.
Quote the rates from the tax rates and allowances ACCA provides. Do not rely on memory for the annual exempt amount.
Write the taxable income line and the £37,700 comparison explicitly. Markers look for the unused band.
In objective questions, check whether the question gives taxable income or total income. Adjust for the personal allowance if needed.
Get the loss order right: current year losses, then brought forward losses down to £3,000, then the exempt amount. Show it as a short working.